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Enforcement and protection | Brussels, 10 April 2019. Last updated on 23 June 2021.

Screening of foreign direct investment

In March 2019, the EU adopted a regulation setting up a framework for the screening of investments from non-EU countries (foreign direct investment) that may affect security or public order.

The regulation's objective is to make sure that the EU is better equipped to identify, assess and mitigate potential risks for security or public order, while remaining among the world’s most open investment areas. It fully applies since 11 October 2020.

On 25 March 2020, as part of measures taken in connection with the Covid-19 emergency, the European Commission provided guidance to Member States on how to use foreign direct investment (FDI) screening in times of public health crisis and economic vulnerability in the EU.

Main features of the EU investment screening framework

The EU framework for investment screening is part of the Commission's commitment to a Europe that protects its companies, workers and citizens. Due to the high degree of integration within the EU, foreign direct investment1 in one Member State could pose risks to security or public order in another Member State, or in the whole Union. Stepping up information sharing and cooperation in the EU is necessary to identify new challenges and to react accordingly. For that purpose, the new framework:

  • creates a cooperation mechanism where Member States* and the Commission will be able to exchange information and raise concerns related to specific investments;
  • allows the Commission to issue opinions when an investment threatens the security or public order of more than one Member State, or when an investment could undermine a strategic project or programme of interest to the whole EU, such as Horizon 2020 or Galileo;
  • encourages international cooperation on investment screening, including sharing experience, best practices and information on issues of common concern;
  • sets certain requirements for Member States that wish to maintain or adopt a screening mechanism at national level. Member States also have the last word on whether or not a specific investment operation should be allowed in their territory, and;
  • takes into account the need to operate under short business-friendly deadlines and strong confidentiality requirements.

*On the basis of the derogation provided under Article 127(7)(b) of the EU-UK Withdrawal Agreement, the United Kingdom will not participate in the cooperation mechanism.

Screening mechanisms of Member States

Under the regulation, Member States may maintain their existing screening mechanisms, adopt new ones or remain without such national mechanisms. The regulation does provide for some key requirements for national screening mechanisms:

  • transparency of rules and procedures;
  • non-discrimination among foreign investors;
  • confidentiality of information exchanged;
  • the possibility of recourse against screening decisions, and;
  • measures to identify and prevent circumvention by foreign investors.

The Commission has published and will keep up-to-date a list of screening laws in the EU.

See the list of screening mechanisms notified by Member States

Analysis of foreign direct investment in the EU

In order to identify facts and trends in relation to foreign investment, the Commission carried out a study of the foreign ownership of EU firms. The study also provides a detailed analysis of the origin of foreign investment, sectoral and geographical distribution and characteristics of foreign-owned companies in the EU.

The study confirms the importance of foreign investment in the EU economy. Foreign ownership has risen continuously over the last ten years and while foreign-owned companies make up only 3% of the companies assessed, they account for a much larger share of total assets (more than 35%) and for about 16 million direct jobs. In addition, the study identified a number of salient trends:

  • Rise in foreign ownership of EU companies in the last 10 years.
  • Importance of 'traditional' investors such as the US, Canada, Switzerland, Norway, Japan and Australia across all sectors of the EU economy.
  • Increase of investment from emerging economies such as China or India.
  • Increasing investment by state-owned enterprises (SOEs).
  • Growing presence of 'offshore investors'.

Group of experts on screening foreign direct investment

The Commission in 2017 established a group of experts from Member States. The objective of the group is to discuss issues relating to investment screening, share best practices and lessons learned, and exchange views on trends and issues of common concern relating to foreign investments. Pursuant to Article 12 of the new regulation, the group may also discuss systemic issues relating to the implementation of the regulation.

International cooperation on investment screening

The new regulation encourages Member States and the Commission to cooperate with the responsible authorities of like-minded third countries on issues relating to the screening of foreign direct investments on grounds of security and public order.

Such administrative cooperation should aim to strengthen the effectiveness of the framework for screening of investment by Member States and the cooperation between Member States and the Commission. The EU pursues international cooperation bilaterally or in a wider format.

In particular, the EU is supporting the ongoing work of the OECD on Investment policies related to national security and public order.

More on Investment screening

  1. 'Foreign direct investment' means investments of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity.